An Updated Bridge Proposal: Towards A Solution To The Current Sovereign Debt Crises And To Restore Growth

Joseph Stiglitz, Ishac Diwan, Vera Songwe, Martin Guzman and Martin Kessler

No 2405, FDL Policy Notes from CEPREMAP

Abstract: A significant portion of the financing from international finance institutions is being absorbed by debt repayments rather than reaching the intended recipients. In other words, the global community is currently funding loans to developing countries which end up “leaking out†to pay off other creditors. While some developing countries need to decrease their debt levels, around 20 to 30 countries have the potential to overcome their debt issues by growing their economies, provided they can secure financing at reasonable rates. Addressing this issue is crucial as it directly impacts the economic stability and prosperity of these countries, as well as their ability to provide essential services and support to their citizens. Many countries have accumulated unsustainable levels of debt that need to be restructured. Despite some progress in resolving debt issues through the "G20 Common Framework," the barriers to default are still too high, and the resulting debt reduction is too low. To encourage the private sector's involvement in resolving these issues, changes to the laws that affect bondholders' incentives to cooperate will be necessary. This is especially true in major jurisdictions for sovereign bond issuances, such as New York and the UK. Introducing a pioneering new strategy, the FDL/IPD paper builds on an evolved version of the †Bridge Proposal†issued by FDL in 2023. Recognizing that not all countries have the same level of debt problems and that a one-size-fits-all approach may not be effective, this proposed strategy seeks to support countries through temporary extensions of maturities for countries facing liquidity problems.

Keywords: Debt Restructuring; Bridge Proposal; international finance institutions; international financial architecture; Public Debt; Debt Crisis; Growth; Illiquidity; Insolvency; MDB Scaling Up; Sustainable Finance; Green Transition; G20 Common Framework (search for similar items in EconPapers)
Pages: 19 pages
Date: 2024-07
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